Candlestick patterns are important for traders looking to understand price movements. The patterns that appear on candlestick charts during a certain time frame give clues about potential trend reversals, continuations, or market indecision. In this article, we’ll take an in-depth look into the Three Falling Method candlestick pattern, analyzing its importance, features, and strategies with the help of chart examples.

Three Falling Method Candlestick Pattern – Definition

The Three Falling Method candlestick pattern is a bearish continuation pattern that appears during a downtrend. It consists of five candles, a large red candle, followed by three small green candles, and then a final large red candle that closes below the first candle. 

This pattern indicates that the current downtrend may experience a short retracement but will likely continue in the downward direction after it. It is a reliable signal for traders to hold their short positions or enter new short positions, anticipating a continuation of the bearish trend.

Three Falling Method Candlestick Pattern – Formation

The three-falling method pattern can appear in the middle of an existing downtrend. This pattern comprises the following candles:

1. The first candle is a large red candle, which is a part of the current downtrend
2. The next three candles are consecutive green candles that close within the low and high of the first red candle
3. The final candle is a large red candle that closes lower than the close of the first candle.

The appearance of this pattern suggests that the sellers have regained control of the security after a brief period of consolidation.

Three Falling Method Candlestick Pattern – Psychology

The Three Falling Methods candlestick pattern reflects the psychology of the market during a downtrend. The pattern begins with a strong bearish candle, indicating the bears are firmly in control. 

However, the appearance of the next three smaller bullish candles suggests weakness in the downtrend, as the bulls attempt to take over temporarily. This creates a period of consolidation in the market. 

Despite the bulls’ efforts, they are unable to push the price above the high of the first bearish candle, signalling the bears’ strength. The pattern with a final large bearish candle that closes below the low of the first candle confirms the continuation of the downtrend. 

Three Falling Method Candlestick Pattern – Trading Ideas

Before the appearance of this pattern, traders should ensure that the previous trend must be a downtrend. Once this pattern is formed, the following are the trade details- 

• Entry- After the formation of the pattern, traders can take a short position at or just below the close price of the final candle of the pattern.
• Profit Target- Traders can exit the trade when the price of the security reaches near the immediate support zone or based on the risk-reward ratio.
• Stop loss- The stop-loss should be placed above the close of the first candle.

Also read…

Three Falling Method Candlestick Pattern – Example

In the above chart of Indus Tower, we can observe the formation of the Three Falling Method candlestick pattern.

At the time of the formation of this pattern, a trader could have taken a short position when the price of the stock started trading below Rs. 342.65 and the stop loss was at Rs. 343.75.

Three Falling Method Candlestick Pattern – Key Characteristics 

1. Formation: The pattern is a five-candlestick continuation pattern that forms in the middle of a downtrend.
2. Price Action: Formation of three continuous small green candles after the first candle formation.
3. Continuation Signal: The Three Falling Method pattern suggests that the bearish trend is likely to continue, as it demonstrates that sellers are still in control.
4. Confirmation: The fifth candlestick acts as a confirmation of the continuation of the downtrend. 

Conclusion

The Three Falling Method pattern is an essential candlestick formation for traders to recognize a potential bearish continuation in security. Understanding how it forms, its significance, and the trading setup assists traders in making well-informed trading decisions.

Traders should always validate the pattern’s formation alongside other technical indicators to prevent false signals. Additionally, implementing proper risk management with favourable risk-reward ratios and consistent practice contributes to a trader’s profitability in the long term.

Written by Deepak

By utilizing the stock screener, stock heatmap, portfolio backtesting, and stock compare tool on the Trade Brains portal, investors gain access to comprehensive tools that enable them to identify the best stocks, also get updated with stock market news, and make well-informed investments.

---

Start Your Stock Market Journey Today!

Want to learn Stock Market trading and Investing? Make sure to check out exclusive Stock Market courses by FinGrad, the learning initiative by Trade Brains. You can enroll in FREE courses and webinars available on FinGrad today and get ahead in your trading career. Join now!!